Age discrimination and insurance

The Government is proposing to allow insurers to continue to use age as a factor in the assessment of risk, provided it is based on relevant information from a source on which it is reasonable to rely.

This guide is based on the law of England and Wales and was last updated on 14th March 2011.

As from April 2012, the Equality Act 2010 will ban unjustifiable age discrimination in the provision of goods, facilities and services, including insurance.

The Government Equalities Office (GEO) has confirmed there will be a specific exception for the provision of financial services. On 3rd March 2011, it published a consultation on the scope of that extension.

But only three days earlier, the European Court of Justice decided in the Test-Achats case that a very similar exception on the use of gender in insurance was incompatible with the fundamental principle of equality. The court ruled that the provision in the EU Gender Directive allowing the exception would become invalid from 21st December 2012.

Age discrimination in the provision of services is not currently prohibited under EU law. But a draft Equal Treatment Directive currently being considered by the European Council would introduce just such a ban, subject to an insurance opt-out in similar terms to the gender exception.

There are now concerns that the age opt-out may be removed from the draft Directive following the Test Achats decision.

The Equality Act

The Equality Act covers all areas of discrimination, including race, disability, sex, sexual orientation, gender reassignment and age. But it also broadens the scope of age discrimination law beyond the workplace to the provision of goods and services.

Most of its provisions came into force on 1st October 2010 and now form part of the law of England and Wales and (with minor exceptions) Scotland, but (again with a few exceptions) not Northern Ireland.

The ban on age discrimination in the provision of goods and services and the exceptions to that ban, however, will not come into force until April 2012.

Age discrimination can refer to a particular age, an age group or a range of ages (section 5). In the provision of services such as insurance, however, the ban on age discrimination will not apply to anyone under 18 (section 28).

Direct discrimination is defined as treating someone less favourably because of a protected characteristic. Differential treatment on the grounds of age, however, will not be discrimination if it is shown to be "a proportionate means of achieving a legitimate aim" (section 13).

Indirect discrimination occurs when a policy which applies in the same way for everybody particularly disadvantages people with a relevant protected characteristic because they have that characteristic (section 19). Such treatment will not be discriminatory if it can be justified as a proportionate means of achieving a legitimate aim.

Indirect discrimination applies to all the protected characteristics except pregnancy and maternity.

Under section 29, a service provider (including a provider of financial services) providing a service to the public or a section of the public must not discriminate against a person by not providing, or by terminating, the service, by the terms it imposes or by subjecting the person to any other detriment.

Section 14 provides that a person who has suffered direct discrimination because of a combination of two relevant protected characteristics can, for the first time, bring a dual discrimination claim. The relevant characteristics are age, disability, gender reassignment, race, religion or belief, sex and sexual orientation.

Exceptions

Exceptions relating to insurance are covered in Schedule 3, Part V, which has not yet been brought into force. To a great extent the exceptions mirror existing legislation in relation to disability, sex and gender reassignment.

For example, the exemption covering the use of gender as a factor in the assessment of risk replicates the current UK regulations. Differences in treatment based on sex will not breach the prohibition, provided they are proportionate and based on relevant and accurate actuarial and statistical data which is regularly updated and available to the public.

In light of the Test-Achats case, however, it seems likely that this part of the schedule will not be bought into force and that the existing regulations (duly amended to reflect the ruling) will continue to apply until 21st December 2012.

There is also a new exception relating to the provision of group health insurance schemes or group personal pensions under an arrangement with an employer.

Insurance and pension providers entering into such arrangements with employers will not be responsible for ensuring the scheme does not discriminate against individual employees. The employer, however, will be responsible for ensuring that the provision of benefits under the scheme complies with the work and employment provisions in the Act.

The age exception

Schedule 3 does not yet include any specific provision relating to the use of age in insurance and financial services.

In January 2010, however, the GEO confirmed that it would introduce a "tailored specific exception allowing age to be used where this is fair and reasonable". On 3rd March 2011, it published a consultation on the form the exception should take.

The paper refers to the GEO's June 2009 consultation paper, which summarised the findings of an independent study by Oxera on the use of age-based practices in financial services and the likely economic impact of restricting such practices.

Oxera's report confirmed that older people generally pay more for motor and travel insurance, and that drivers under 25 pay the most for motor cover. But it found no evidence of systematic overcharging.

And while there were fewer providers for older customers (for both motor and travel) and for the young (for motor), only a small proportion of people were turned down because of their age. Most of those who were refused cover on age grounds subsequently found insurance elsewhere.

Oxera concluded that limiting the use of age in financial service provision would be likely to impose higher costs across the board. While some age groups might benefit from the restriction, this would almost certainly be at the cost of other age groups.

On the basis of these findings, the GEO proposes the following wording for the financial services exception:

"It is not a contravention of section 29, so far as relating to age discrimination, to do anything in connection with the provision of a financial service, provided that any assessment of risk carried out for the purposes of providing the financial service must, so far as it involves the consideration of a person’s age, be carried out by reference to information which is relevant to the assessment and from a source on which it is reasonable to rely."

The exception will mean that age bands and age limits can still be used, as long as they are based on relevant information from a source on which it is reasonable to rely. Arbitrary risk assessments based on age rather than on relevant information will, however, be open to challenge.

Transparency and access

In order to increase transparency, the GEO will ask the Association of British Insurers (ABI) to publish aggregate data for the industry as a whole which will show how age is used when assessing risk and pricing travel and motor insurance products. This information will be available for anyone to check.

In addition, if a provider is unable to provide cover to a person because of their age, it will be required to refer that person to a provider that can, or to a dedicated signposting service that would provide details of other firms in that market.

The British Insurance Brokers Association (BIBA) already operates a signposting system and the GEO will ask BIBA to work with the ABI to develop it further.

The provisions for improving transparency and access will be based on industry-level agreements rather than regulatory requirements. But the way age is used in financial services will be subject to an independent review three years after the ban comes into effect.

Those findings will then be taken into account in the wider post-implementation review of the Act, which will take place between three and five years of its commencement.

The Equal Treatment Directive

At European level there is currently no law against age discrimination in the provision of insurance or other services.

But a draft Equal Treatment Directive will provide protection outside the workplace from discrimination on grounds of age, disability, sexual orientation and religion or belief – but not gender, which will continue to be dealt with under the Gender Directive.

The original text, adopted by the European Commission in July 2008, included a special rule for financial services which allowed member states to permit "proportionate differences in treatment where, for the product in question, the use of age or disability is a key factor in the assessment of risk based on relevant and accurate actuarial or statistical data".

In April 2009, the European Parliament approved an amended wording which refers to age being a "determining" rather than a "key" factor and includes a requirement that the data be made available on request in an accessible way.

This wording is almost identical to the insurance exception in Article 5(2) of the Gender Directive which, the European Court concluded in Test-Achats, "works against the achievement of the objective of equal treatment between men and women, which is the purpose of [the Directive] and is incompatible with [the Charter of Fundamental Rights of the European Union]."

It solution was to set a time limit on the gender exemption which will expire on 21st December 2012, five years after the Gender Directive came into force.

The draft Directive is due to come before the European Council in June 2011. Whether, in light of the Test-Achats ruling, the proposed age exception will be retained is not yet known. There is, however, a risk that it may be withdrawn or at least limited in time.